FRI 15 APRIL, 2022-theGBJournal | Nigeria’s FX reserves increased by $53.48 million w/w to $39.71 billion (12th April 2022).
Meanwhile, the naira depreciated both at the I&E window (IEW) and parallel market by 0.2% to NGN417.50/USD and 0.5% to N590.00/USD, respectively.
At the IEW, total turnover (as of 13th April 2022) declined by 14.7% WTD to USD498.85 million, with trades consummated within the NGN410.00 – NGN453.15/USD band.
In the Forwards market, the naira was flat at the 1-month (NGN418.12/USD) and 6-months (NGN432.47/USD) contracts but appreciated at the 3-months (+0.1% to NGN423.78/USD) and 1-year (+0.2% to NGN448.01/USD) contracts.
In our opinion, the CBN has enough supply to support the FX market over the short term, given inflows from the recently issued Eurobond and the IMF’s SDR.
However, foreign inflows are paramount for sustained FX liquidity over the medium term, in line with our expectation that accretion to the reserves will be weak given that crude oil production levels remain quite low. Thus, FPIs which have historically supported supply levels in the IEW (53.8% of FX inflows to the IEW in 2019FY) will be needed to sustain FX liquidity levels.
Hence, we think further adjustments in the NGN/USD peg closer to its fair value and flexibility in the exchange rate would significantly attract foreign inflows back to the market.
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